Tuesday, October 2, 2018

Mixed markets as traders assess international trade

Dow went up 27, decliners over advancers about 3-2 & NAZ gave back 13.  The MLP index fell 1+ to the 279s & the REIT index dropped 3+ to the 348s.  Junk bond funds edged higher & Treasuries rose in price.  Oil fluctuated in the 75s (more below) & gold surged 18 to 1209.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil75.37
  +0.07 +0.1%

GC=FGold  1,207.60
 +15.90 +1.3%

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Stocks were flat, as traders contrasted political concerns in Europe & the new trade agreement involving the US, Canada & Mexico.  European assets sold off after an Italian party official made anti-€ comments & this uncertainty was hitting sentiment, stateside.  In European trading, London's FTSE traded lower by 0.5%, Germany's DAX fell 0.8% & France's CAC declined 1%.  Stocks surged yesterday to start the new qtr after Canada & the US reached a trade deal that also brings Mexico in on a trilateral agreement.  The Dow rallied 192 (0.7%) to 26,651 & the S&P 500 rose 10 (0.3%) to 2924.  The tech-heavy NAZ dipped 9 to 8037.

Stocks flat following trade-fueled rally

Kevin Hassett, chairman of the Council of Economic Advisers, said that the new trade deal with Mexico & Canada is a benchmark for future negotiations, especially with China.  The US & Canada announced a trade agreement that includes Mexico to replace the North American Free Trade Agreement.  The new pact will be named the US-Mexico-Canada Agreement.  According to Hassett, the pact will force China to come to the negotiating table.  “Right now there’s a lot of pressure on China,” Hassett said.  “And they see that we can actually make very smart, clever deals and get partners together and come up with a path forward that opens up our markets to each other and closes the back door into the U.S.”  Although some retailers have expressed concerns over potential price increases resulting from the tariffs, Hassett said consumers shouldn't worry about feeling the pinch.  “Don’t forget you can buy stuff from other countries besides China, not just the U.S.,” he said.  “And so as we were looking at the stuff to put the tariffs on for China we were studying things that had close substitutes and trying to do it in a way to put maximum pressure on them and minimum pressure on us.”  The new deal also unifies the US & its allies against China's unfair trade practices, like stealing intellectual property, in addition to speeding up negotiations.  “We also now have this really great deal that we can show to our trading partners like the European Union and say, ‘Hey you know if you copy this deal then we can be done tomorrow,” he added.  “And I think that’s going to help these things move very quickly.”  “I expect to see a lot of deals close over the next few months.”

New trade deal unites US allies against China: Kevin Hassett

PepsiCo (PEP), a Dividend Aristocrat, delivered better-than-expected Q3 earnings that showed signs of growing consumer demand for its teas, Gatorade, namesake cola & other beverages in North American.  The 16% surge in profits was a victory for Indra Nooyi on her last day as CEO, after years of facing pressure to sell or spin the company's beverage business as its growth has lagged behind the competition in packaged snacks.  While its snacks continue to command presence & sales in a crowded market, its beverages have grappled with slowing carbonated sales & competition from new upstart rivals.  To revive the business, PEP has picked 3 of its largest beverage brands, Gatorade, Pepsi & Mountain Dew, to throw its marketing $s behind.  Those efforts seem to have taken hold, with its North American beverage business posting organic growth of 2.5%, stripping out the impact of acquisitions & other variables.  Last qtr, it was down 1.5%.  "Splitting the entire company is something we took off the table a long time ago and are not revisiting that at all, based off the performance of the last six years we've proven the case that the business being together creates value," CFO Hugh Johnston said.  Still, the growth in beverage sales came at a cost.  Operating profit for its North American beverage business fell 11%, due to increased marketing expenses as well as rising transportation and commodity costs.  To cover higher expenses, PEP started raising beverage prices in Sep.  The results of those bumps will therefore be reflected in the next qtr.  Johnston added he expects the company's advertising & marketing spending for the beverage unit will stay consistent & it believes the units growth is "sustainable."  EPS rose to $1.75, up from $1.48 a year earlier.  EPS was $1.59 on an adjusted basis, which strips out fluctuations in commodities prices, restructuring costs & some tax issues, beating the $1.57 expected.  Net sales rose 1.5% to $16.49B, beating expectations of $16.36B.  The company expects revenue growth for the year of 3%.  It also said that a strong $ will negatively impact its fiscal year earnings by one percentage point.  As result, it anticipates EPS of $5.65 in fiscal 2018, up 8% from 2017.  The stock fell 1.12.
If you would like to learn more about PEP, click on this link:

PepsiCo tops estimates and returns beverage business to growth on Nooyi's last day as CEO

Oil prices steadied but remained near their highest since Nov 2014 as markets braced for tighter supply once US sanctions against Iran kick in next month.  Intl benchmark Brent crude oil gained a penny to $84.99 per barrel after reaching a new 4-year high of $85.45 in the previous session.  West Texas Intermediate (WTI) crude futures rose a dime to $75.40 a barrel, having hit a nearly 4-year high of $75.91 earlier in the session.  Brent & WTI have roughly tripled compared with lows seen in Jan 2016, which prompted OPEC & allies led by Russia to curb oil supplies to rebalance an oversupplied market starting in Jan 2017.  Sentiment was lifted by a last-gasp deal to salvage NAFTA as a trilateral pact between the US, Mexico & Canada, rescuing a $1.2T a year open-trade zone that had been about to collapse.  More fundamentally, oil markets have been pushed up by looming US sanctions against Iran's oil industry, which at its most recent peak this year supplied nearly 3% of the world's almost 100M barrels of daily consumption.  A survey of OPEC production found Iranian output in Sep fell 100K barrels per day, while production from the group as a whole rose by 90K bpd compared with Aug.  The Trump administration set a deadline of Nov 4 for oil buyers to stop purchasing Iranian crude.  Many analysts expect OPEC will struggle to cover a decline in exports from Iran.

Oil trades near 4-year peak ahead of Trump's sanctions on Iran

The stock market is still waiting for Sep economic to be reported.  While the trade deal with Mexico & Canada looks goods, many other countries are being dealt with.  And China is the biggie with no solution in sight.  However the popular stock averages remain close to record highs.

Dow Jones Industrials

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